Washington State’s Emissions Allowance Program’s 1st Auctions
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Washington State wrapped up its first full year of auctions for tradable emission allowances in December, as the state considers joining an integrated regional greenhouse gas reduction program with California and Québec.
In 2021, the Washington state legislature set up a cap-and-invest program that creates tradable emission allowances as a measure to reduce and limit greenhouse gas emissions over time. This program is intended to help the state move toward a low-carbon economy. One allowance equals one metric ton of carbon dioxide-equivalent emissions. The program held its first allowance auction on February 28, 2023, and held subsequent auctions in May, August, and December.
Washington’s cap-and-invest program, the latest addition to U.S. carbon market programs, aims to reduce the state’s greenhouse gas emissions to 45% below 1990 levels by 2030, 70% below 1990 levels by 2040, and net-zero emissions by 2050.
Under this market-based initiative, the Washington State Department of Ecology issues allowances for greenhouse gas emissions. The Department of Ecology allocates some allowances to certain businesses for free, as directed by the law, and it sells the rest at quarterly auctions. Businesses can apply these allowances to meet annual compliance requirements, save them to offset future emissions, or trade them in a secondary market.
At the first cap-and-invest program auction, allowances sold at $48.50 per allowance, and the price increased to about $56.00 at the second auction and about $63.00 at the third auction due to strong demand. To address the demand, the Department of Ecology activated its Allowance Price Containment Reserve (APCR). The APCR is as a separate allowance pool the Department of Ecology can release into the market when prices surpass a predetermined threshold. The Department of Ecology held two APCR auctions—one in August and one in November 2023—where only entities with a compliance obligation to obtain allowances equal to their emissions and submit them to the Department of Ecology were eligible to participate.
The settlement price in the program’s fourth auction was about $52.00 per allowance, down from about $63.00 per allowance in the third auction.
In November 2023, the Washington State Department of Ecology announced that it intends to link its program with greenhouse gas reduction programs in California and Québec. By linking these three programs, it intends to harmonize efforts across jurisdictions and combine carbon markets through various components, such as compliance periods, allowance prices, and offsets.
Principal contributor: O. Nilay Manzagol
Courtesy of U.S. EIA
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